Universal Music Demands End to Massive Digital Royalties Class Action

The major label gives a host of reasons why claims from the likes of Chuck D, Rick James and The Temptations should be rejected.

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The Temptations

Over the past few years, major record labels have been attempting to put out a legal firestorm from recording artists who claim to have been cheated on digital music. Some labels like Sony and Warner have agreed to pay millions of dollars to settle class actions.

Not Universal Music Group. The major has been fighting tooth and nail, and on Friday, Universal Music lodged a pair of summary judgment motions in an attempt to defeat its own suing artists.

The litigation inferno stems from a 2010 appellate ruling in F.B.T. Productions v. Aftermath that suggested that record labels should be treating digital download income off of venues like Apple's iTunes as "licenses" rather than "sales." The difference could mean a lot of money because under typical licensing or leasing provisions of artist-label contracts, about 50 percent of collected revenue gets handed over to artists. Under sales provisions, it's usually not more than 15 percent.

After F.B.T. Productions -- which did a lot of work on Eminem's seminal recordings -- experienced some success, many other artists filed class actions against Universal Music. Many of the cases were then consolidated, and along the way, some artists like Rob Zombie and Otis Williams of The Temptations have withdrawn their claims while others like Chuck D. of Public Enemy, Rick James (by way of trust), Dave Mason of Traffic, Whitesnake, Andres Titus of Black Sheep, Ron Tyson of The Temptations and Bo Donaldson have remained in the case to challenge Universal Music's accounting.

In one of its summary judgment motions (read here), Universal Music writes its own view of the history of these digital royalty claims. "In 2002, with online piracy still ravaging the music industry, UMGR sought to enlist support from recording artists for legal online music sales by announcing to the music community a new 'royalties model' for calculating artists’ royalties for Downloads," says a memorandum authored by the label's attorneys at the law firm of Jeffer Mangels Butler & Mitchell

Universal Music says it saw iTunes downloads as the “equivalent of a physical sale through a new distribution channel,” an interpretation it says would have entitled the label to make packaging deductions when calculating royalties. But supposedly, the label had a generous heart. "UMGR determined it would not to take such contractual royalty deductions for Downloads, even when an artist’s contract allowed it," continues the memorandum.

The defendant nods to some of the press that this new "royalties model" received at the time. Some recording artists reps "hailed" it. Others expressed ambivalence. And yet, a few didn't think it had gone far enough. A few artist attorneys are said to have brought forward the argument that these downloads were "licenses," an interpretation which Universal Music rejected. Then came the F.B.T. decision, and subsequently the firestorm of litigation.

After a couple years of discovery in this massive case, which produced some 665,000 pages of documents, Universal Music says the claims now must be rejected by the judge. The label brings a few arguments to support their cause.

In reference to the plaintiffs' claim for violation of California's unfair competition law, Universal Music says such claim is defective because there is no sufficient connection to the public being harmed. "The record remains devoid of evidence that the industry discussion about Download royalties in the early 2000s had anything to do with the general public, let alone even reached consumers or would have been comprehensible to them," states the memorandum. "Plaintiffs assert UMGR made various allegedly inaccurate public statements. As a threshold matter, there is no evidence that a single consumer heard any such statements, let alone understood them, was harmed by them, or needs 'protection' from them."

Universal Music challenges the lawsuit on other grounds. Some of the artists like Chuck D and Titus are said to have agreed that their business relationship would be governed by New York law, making their assertion of a California law out of bounds. The label also believes that the statute of limitations precludes the plaintiffs' breach of contract claims and points to a 2004 letter from artists’ lawyers to Universal Music over the issue of digital music that "amply demonstrates that Plaintiffs could have asserted the theory they advance in this case... at least seven years before filing these suits."

In Universal Music's other summary judgment memorandum (read here), the defendant objects to the claims of Donaldson and Tyson -- each for interesting reasons.

As far as Donaldson, who was the lead singer of Bo Donaldson and The Heywoods, the defendant says the musical group is a "partnership that agreed to take action only by majority vote, and Donaldson has never obtained the required majority consent to pursue this action."

But even if that's not correct, Universal Music introduces another wrinkle to the whole licenses vs. sales dispute. "Few, if any, recording contracts have the starkly dichotomous structure of the contract in F.B.T.," writes Universal Music's lawyers. "None of Plaintiffs’ contracts do. Certainly the contract on which plaintiff Bo Donaldson is suing does not. To the contrary, when Plaintiffs’ theory that UMGR 'licenses' Downloads to Download Providers is applied to Donaldson’s contract, this actually dictates a lower royalty for Downloads than UMGR is paying under that contract. Of course, if, under Plaintiffs’ theory, Donaldson has been overpaid royalties, he cannot maintain claims for underpayment of royalties."

Finally, there's Tyson, a tenor in The Temptations, whose digital royalties claim has gotten a good deal of press. According to the summary judgment, he joined the singing group in 1983 and therefore wasn't a member of the contracts that entailed the hit recordings from the '60s and '70s. And as for contracts in the '80s and '90s, Tyson might have been "mentioned" in them, says Universal Music, but he's allegedly just an employee of founding member Otis Williams.

"It is eminently unfair for the owner of A Song For You and Tall Temptations, Williams, to dismiss his claims (without prejudice) while one of his employees, Tyson, continues to prosecute the claims ostensibly on Williams’ corporations’ behalf," says the defendant. "Presumably, if Tyson wins, Williams’ corporations will claim the benefit of that victory; if Tyson loses, they will claim the right to disavow the loss as unauthorized by and inapplicable to them, and to sue UMGR again on the same claim Tyson just lost."

And thus, the claim over digital music from The Temptations remains in some sort of odd standing limbo.

The plaintiffs -- being represented by nearly a half dozen prominent entertainment law firms -- will likely respond soon to the summary judgment arguments. We will, of course, cover those when they come.